 | Gold Standards and the Real Bills Doctrine in U.S. Monetary Policy
Richard H. Timberlake, Jr.
Volume 2, Number 2, August 2005 In recent decades authors have blamed “the gold standard” for the failure of the Federal Reserve System to pursue a counter-cyclical monetary policy that would have prevented the Great Contraction and the subsequent Great Depression. While the authors note differences between the classical pre-World War I gold standard and the post-World War I gold-exchange standard, they nonetheless claim that the latter “gold standard” was operational during the 1920s and early 1930s. I argue that the machinations of the world’s central bankers retained only the outward sign from the working gold standard of the previous era. The authentic gold standard provided long-term stability not matched by any other monetary system before or since. But in the interwar period, managing gold, as the central bankers tried to do, proved to be a disaster. The gold standard did not succeed; neither did it fail. The issue is not even moot, because the gold standard was not functional.
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